WASHINGTON – United States Senator Mary L. Landrieu, D-La., Chair of the Senate Committee on Small Business and Entrepreneurship, today held a field hearing in Lafayette with independent oil and gas producers. During the hearing Sen. Landrieu led a discussion on the impact independent oil and gas producers—many of which are small businesses—have on the local economy, the impact federal tax policies have and how to better support them.
Testifying before the Committee were Director of Tax and Accounting Policy for the American Petroleum Institute Stephen Comstock, Managing Member and CEO of Bretagne, LLC Gigi Lazenby, Vice President of Tax for Southwestern Energy Jennifer Stewart, Founder of Jackson Offshore Operators in Harvey, La., Lee Jackson, Co-Founder and Senior Managing Director of PerPetro Energy, LLC Joe LeBlanc of Lafayette, and Partner at Ernst & Young Accounting Stephen Landry.
“In virtually every recent public poll that asks respondents to name the most important issue Congress should be focused on: jobs, the economy, and expanding opportunities for the middle class come out as number one,” Senator Landrieu said. “Partisan bickering and gridlock is slowing things down, but Congressional action should not stand in the way of efforts to create the kinds of high-skilled, high-wage jobs that will revive the middle class, drive America’s 21st century economy, and increase our domestic energy production.”
According to the Independent Petroleum Association of America, as oil and natural gas jobs continue to grow, incomes are also rising. While the average income of Americans has decreased, the average hourly pay for upstream oil and gas is about $34.50, or nearly 50 percent higher than the national average. According to Bureau of Labor Statistics data, the total payroll for upstream oil and natural gas in 2011 was over $53 billion.
“America’s oil and natural gas industry has been a bright spot in our economy, with benefits felt across the country,” Mr. Comstock testified. “Innovation, many times spurred by small businesses and entrepreneurs, has helped generated a domestic energy revolution through the development of hydraulic fracturing and horizontal drilling techniques. This revolution in turn has sparked new life into domestic manufacturing, is supporting 2.1 million jobs and has raised the average household’s disposable income by $1,200 last year, according to a recent study by IHS Global Insight.”
“Independent producers invest their American cash flow back into new American production projects,” Ms. Lazenby testified. “Reinvestment is essential to maintain and grow U.S. production; without it, U.S. production would decline rapidly because wells deplete as they are produced. If the United States wants to continue to increase national energy security and further the economy, more drilling will be required, not less.”
“The major oil and gas companies find investment in the United States to be attractive for several reasons,” Mr. Jackson testified. “The USA is a stable country; it is a country with fair and well-established laws and tax regulations that make drilling, development and projection of oil and gas in the USA economically attractive. In addition, the USA has been blessed that oil and gas has been found here in abundance. Changing the existing tax laws and regulations to increase taxes, fees and create higher costs to the detriment of oil and gas industry in the USA will only cause the oil and gas companies to move their future capital spending to other countries that provide a better economic return to the investor.”
“Tax policy reforms that increase the cost of capital for America’s oil and gas industry could have several negative effects for the overall economy,” Mr. Landry testified. “Fewer wells drilled and decreased energy investment would cause domestic oil and natural gas production – one of the bright spots in our economy over the past several years – to fall significantly below current projections, making the goal of attaining US energy independence over the next decade more difficult to reach. Taxes paid by the industry to the federal government could fall significantly. In addition, the effects could include lower earnings and fewer jobs for America’s small businesses”
According to the IPAA, independent producers develop 95% of American oil and natural gas wells, produce 54% of American oil, and 85% of American natural gas. The average independent producer has been in business for 26 years and employs only 12 full-time employees and three part-time employees—quite a contrast to common view of oil producers.
Independent producers support over 4 million direct and indirect jobs onshore, and over 200,000 offshore, according to IHS Global Insight. These jobs drive over $100 billion in total payroll, contributing billions to local tax revenue and economic activity, which in turn support an average of 5.2 jobs for every direct employment. Onshore, independent producers contributed $579 billion to the US economy, and offshore contributed nearly $100 billion, again according to IHS Global Insight.
In 2010, the most recent year for which data is available, independent producers drilled 37,175 wells. These wells represent the vast majority of new production and exploration in the United States and are what has driven the expansion of shale gas production. Combined, independent production also drives nearly $6 billion of the $11 billion collected each year in rents, royalties and bonus bids.
A 2011 Bloomberg Government Report titled “Eliminating Oil and Gas Breaks: Independent Producers Face a Funding Gap” concluded that elimination of oil and gas tax breaks would have a negligible effect on the five major oil companies’ U.S. drilling activity. However, repeal would reduce the drilling activity of independent producers.
If these beneficial tax provisions had not been included in the current code, independent producers would have spent $2.1 billion less to drill new wells; about 1,558 fewer wells would have been drilled in the United States; and revenue loss and job loss would have resulted.
“Each time proposals have been suggested to eliminate these tax provisions, I have made clear that not only would any bill that included that language lose my support, I would use every tool at my disposal to stop such a bill from passing,” Sen. Landrieu added. “These provisions have been in law for good purpose and taking away these tax provisions would not only hurt small and independent producers here in Louisiana and across the country, it would kill jobs and hurt our economy.”